Question
Use Worksheet 11.1. Mary Bender is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the
Use Worksheet 11.1. Mary Bender is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, what she would really like to do is open a bookstore of her own. She would like to open her store in about eight years and figures shell need about $50,000 in capital to do so. Given that Mary thinks she can make about 10 percent on her money, use Worksheet 11.1 to answer the following questions C. If she already has $10,000 socked away, how much would she have to put away annually to accumulate the required capital in eight years? D. Given that Mary has an idea of how much she needs to save, explain how she could use an investment plan to help reach her objective.
C. If she already has $10,000 socked away, how much would she have to put away annually to accumulate the required capital in eight years?
D. Given that Mary has an idea of how much she needs to save, explain how she could use an investment plan to help reach her objective.
DETERMINING AMOUNT OF INVESTMENT CAPITAL Financial goal: Accumulate $330,000 in 18 years for the purpose of meeting the cost of daughter's college education. 1. Targeted Financial Goal (see Note 1) $ 330,000 2. Projected Average Return on Investments 6% A. Finding a Lump-Sum Investment: 3. Future Value Factor, from Appendix A based on years to target date and a projected average return on investment of % 0,000 4. Required Lump-Sum Investment line 1 - line 3 $ $ 10,000 B. Making a Series of Investments over Time: 5. Amount of Initial Investment, if any (see Note 2) 6. Future Value Factor, from Appendix A = based on 18 years of target date and a projected average return on investment of 6% 2.854 7. Terminal Value of Initial Investment line 5 x line 6 $ 28,540 8. Balance to Come from Savings Plan line 1 - line 7 $ 301,460 9. Future Value Annuity Factor, from Appendix B -based on 18 years to target date and a projected average return on investment of 6% 10. Series of Annual Investments Required over Time line 8+ line 9 30.906 $ Note 1: The "targeted financial goal" is the amount of money you want to accumulate by some target date in the future. Note 2: If you're starting from scratch-i.e. there is no initial investment-enter zero on line 5, skip lines 6 and 7, and then use the total targeted financial goal (from line 1) as the amount to be funded from a savings plan; now proceed with the rest of the worksheet. DETERMINING AMOUNT OF INVESTMENT CAPITAL Financial goal: Accumulate $330,000 in 18 years for the purpose of meeting the cost of daughter's college education. 1. Targeted Financial Goal (see Note 1) $ 330,000 2. Projected Average Return on Investments 6% A. Finding a Lump-Sum Investment: 3. Future Value Factor, from Appendix A based on years to target date and a projected average return on investment of % 0,000 4. Required Lump-Sum Investment line 1 - line 3 $ $ 10,000 B. Making a Series of Investments over Time: 5. Amount of Initial Investment, if any (see Note 2) 6. Future Value Factor, from Appendix A = based on 18 years of target date and a projected average return on investment of 6% 2.854 7. Terminal Value of Initial Investment line 5 x line 6 $ 28,540 8. Balance to Come from Savings Plan line 1 - line 7 $ 301,460 9. Future Value Annuity Factor, from Appendix B -based on 18 years to target date and a projected average return on investment of 6% 10. Series of Annual Investments Required over Time line 8+ line 9 30.906 $ Note 1: The "targeted financial goal" is the amount of money you want to accumulate by some target date in the future. Note 2: If you're starting from scratch-i.e. there is no initial investment-enter zero on line 5, skip lines 6 and 7, and then use the total targeted financial goal (from line 1) as the amount to be funded from a savings plan; now proceed with the rest of the worksheetStep by Step Solution
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